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Performance Based Contracting

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Performance Based Contracting

  1. 1. Performance Based Contracting Florida State University Purchasing Department
  2. 2. Adopting A Performance Mindset <ul><li>The Basic Principle: </li></ul><ul><li>Managing Results Through </li></ul><ul><li>Measurement </li></ul>
  3. 3. Basic Requirements Procurement Level <ul><li>Requires : Competitive Solicitation </li></ul><ul><li> and a Written Contract </li></ul><ul><li>Options : ITB, RFP, ITN, State Term Contract </li></ul>$50,000 Purchase (Category 2) Discretionary Procurement Method
  4. 4. University Procurement Clarification of Procurement Methods
  5. 5. University Procurement Other Procurement Methods <ul><li>State Contract </li></ul><ul><ul><li>Originated by the Department of Management Services </li></ul></ul><ul><li>University Term Contract </li></ul><ul><ul><li>Purchasing Agent Initiated </li></ul></ul><ul><li>Exceptions </li></ul><ul><ul><li>Sole Source, Emergency, etc. </li></ul></ul>
  6. 6. Making a Contract Performance Based Key Attributes <ul><li>Outcome orientation </li></ul><ul><ul><li>Bids solicited based on expected results NOT </li></ul></ul><ul><ul><li>Activities to be conducted </li></ul></ul><ul><li>Clearly defined objectives </li></ul><ul><li>Clearly defined timeframes </li></ul><ul><li>Performance incentives </li></ul><ul><li>Performance monitoring </li></ul>
  7. 7. Making a Contract Performance Based Deliverables/Milestones <ul><li>Clear </li></ul><ul><li>Detailed </li></ul><ul><li>Concise </li></ul><ul><li>Specific </li></ul><ul><li>Measurable </li></ul><ul><li>Quantifiable </li></ul>Must Be:
  8. 8. Making a Contract Performance Based Measuring What’s Relevant: Selection Factors <ul><li>Total cost of ownership </li></ul><ul><li>Quality of goods/services </li></ul><ul><li>Proposed Technical Performance </li></ul><ul><li>Financial Stability </li></ul><ul><li>Cost of training </li></ul><ul><li>Qualifications of the individuals within the company </li></ul><ul><li>Risk Assessment of the proposed solutions </li></ul><ul><li>Availability and cost of technical support </li></ul><ul><li>Past Performance </li></ul><ul><li>Cost/Price </li></ul>
  9. 9. Making a Contract Performance Based Step 1 Planning Understanding Achievement Goals Step 2 Acquisition Strategy Making Performance Based Partnerships Step 3 Contract Management Incentives Step 4 Monitoring
  10. 10. Step I: Planning Understanding Achievement Goals Primary Goals <ul><li>Financial Savings </li></ul><ul><li>Better Quality </li></ul><ul><li>Better Service </li></ul>“ The primary goal of Performance Based Contracting is the achievement of the BEST VALUE for the Taxpayer” <ul><li>More Innovation </li></ul><ul><li>More Flexibility </li></ul><ul><li>More Availability </li></ul>This Includes:
  11. 11. Step I: Planning Understanding Achievement Goals <ul><li>“Best Value” Definition </li></ul><ul><li>The outcome of any acquisition that ensures customer needs are met in the most effective, timely, and economical manner. </li></ul>
  12. 12. Step I: Planning Understanding Achievement Goals <ul><li>1) Ask These Key Questions: </li></ul><ul><ul><li>What are your departments Performance Goals? </li></ul></ul><ul><ul><li>How will the contract/vendor support those goals? </li></ul></ul><ul><li>2) Derive Partnership Goals </li></ul><ul><li>3) Prioritize Partnership Goals </li></ul><ul><li>4) Assure/Assess the Compatibility of these Goals </li></ul>
  13. 13. Step I: Planning Understanding Achievement Goals Relationship with Vendors <ul><li>Visit the with the vendor/provider </li></ul><ul><li>Document all communications </li></ul><ul><li>Keep your attitude friendly </li></ul><ul><li>Be assertive…but not antagonistic </li></ul><ul><li>Be honest when you don’t know the answer and obtain an answer as soon as possible </li></ul>“ A good vendor relationship will add greatly to the chances of success and satisfaction of a contract”
  14. 14. Step I: Planning Understanding Achievement Goals Criteria Assessment <ul><li>Dollar Value of the Contract </li></ul><ul><li>Nature of the Services </li></ul><ul><li>Number of Clients Served </li></ul><ul><li>Prior Provider Performance and Corrective Actions </li></ul><ul><li>New Provider or Change in Key Executives </li></ul><ul><li>State or Non-State Contract </li></ul>
  15. 15. Step I: Planning Understanding Achievement Goals Potential Pitfalls <ul><li>1) Inhibiting Experimentation </li></ul><ul><li>2) Cutting Cost But Not Service </li></ul><ul><li>3) Stifling Overachievement </li></ul><ul><li>4) No Start-up Funds </li></ul><ul><li>5) Inhibiting Symbiotic Relationships </li></ul><ul><li>6) Risk Identification </li></ul><ul><li>-Contract Risk and Contract Management Risk </li></ul>
  16. 16. Step I: Planning Risk Management <ul><li>What is Risk Management? </li></ul><ul><li>The culture, processes, and structures that are directed toward the effective management of potential opportunities and adverse effects. </li></ul><ul><li>Why does it Matter? </li></ul>
  17. 17. Step I: Planning Stages in Managing Risk <ul><li>The main steps in a risk management process: </li></ul><ul><li>Establish the context </li></ul><ul><li>Identify the Risks </li></ul><ul><li>Analyze and Quantify the Risks </li></ul><ul><li>Evaluate and Prioritize the Risks </li></ul><ul><li>Treat the Risks </li></ul><ul><li>Monitor and Review </li></ul>
  18. 18. Step I: Planning Understanding Achievement Goals Avoiding Pitfalls <ul><li>Start Simple & Build </li></ul><ul><li>Monitor Performance Indicators Frequently </li></ul><ul><li>Take an Adaptive Approach </li></ul><ul><li>Encourage Collaboration with Contractors </li></ul><ul><li>Reward Contractors who Demonstrate Well Defined Progress Consistently </li></ul>Robert D. Behn & Peter A. Kant, “Strategies for Avoiding the Pitfalls of Performance Contracting,” Public Productivity and Management Review, 22 (4), 1999, 470-89.
  19. 19. Step I: Planning Establishing a Contract Manager <ul><li>Definition of Contract Manager: </li></ul><ul><li>The Contract Manager is the person charged with the daily administrative management of the contract. Primary duties are to plan activities, manage risk, monitor contractor performance and exercise delegated authority. </li></ul>
  20. 20. Step II: Acquisition Strategy Making Performance Based Partnerships Establishing a Baseline <ul><li>Establishing a Performance Baseline is Vital to Setting Performance Expectations </li></ul><ul><li>Begin By Measuring Pre-Contract Performance </li></ul><ul><li>Assure Goals are Measurable in a Contracting Context </li></ul>
  21. 21. Step II: Acquisition Strategy Making Performance Based Partnerships Developing Performance Goals <ul><li>Borrowing </li></ul><ul><li>Benchmarking </li></ul>“ When developing Performance Goals, consider the future possibilities…don’t use past performance as a limiting factor” <ul><li>Mutuality </li></ul><ul><li>Best Practices </li></ul>CONSIDERATIONS:
  22. 22. Step II: Acquisition Strategy Developing Performance Goals Detailed Scope of Work “ The Detailed Scope of Work describes what the contractor is to accomplish. It should address what, who, when, where & how. It is the foundation for the entire procurement” <ul><li>What is to be done and what are the deliverables </li></ul><ul><li>Who is going to do it </li></ul><ul><li>When it is going to be done </li></ul><ul><li>Where will it be done </li></ul><ul><li>How it will be done and how can you tell when it’s done </li></ul>
  23. 23. Step II: Acquisition Strategy Making Performance Based Partnerships Contract Negotiation <ul><li>There are 2 elements in Negotiating Contracts: </li></ul><ul><li>1) Skill of Negotiator </li></ul><ul><ul><li>Know what to ask for </li></ul></ul><ul><li>2) Leverage of the Buyer </li></ul><ul><ul><li>Know your leverage </li></ul></ul>
  24. 24. Step II: Acquisition Strategy Making Performance Based Partnerships Developing Performance Goals <ul><li>Solicit Service Providers for: </li></ul><ul><li>1) Development of Performance Measures </li></ul><ul><li>2) Creation of Incentives </li></ul><ul><li>3) Referrals </li></ul>
  25. 25. Step III: Contract Management Contract Manager Role/Responsibilities <ul><li>Contract Manager interacts directly or indirectly with: </li></ul><ul><li>Personnel in the Department </li></ul><ul><li>Purchasing </li></ul><ul><li>General Counsel’s Office </li></ul><ul><li>Comptroller’s Office </li></ul><ul><li>Budget Office </li></ul>
  26. 26. Step III: Contract Management Contract Manager Roles/Responsibilities <ul><li>Defining precisely what is required to meet a need </li></ul><ul><li>Carrying out the preparations for soliciting, analyzing, and awarding contracts </li></ul><ul><li>Negotiating the contract and amendment(s) </li></ul><ul><li>Overseeing and enforcing the providers performance of contract terms and conditions </li></ul>
  27. 27. Step III: Contract Management Creating Incentives <ul><li>Payment Structures Should be Tied to Performance Elements </li></ul><ul><li>Levels of Performance Should be Differentiated for Incentives </li></ul><ul><li>Incentive Successes Should be Tracked </li></ul>
  28. 28. Step III: Contract Management Skill Set Requirements <ul><li>Knowledge </li></ul><ul><li>Contract Law </li></ul><ul><li>Current Leverage </li></ul><ul><li>Skills </li></ul><ul><li>Accounting </li></ul><ul><li>Negotiating </li></ul><ul><li>Arbitration </li></ul><ul><li>Communication </li></ul><ul><li>Abilities </li></ul><ul><li>Compliance Measurement </li></ul><ul><li>Change Adaptation </li></ul><ul><li>Mental Flexibility </li></ul>
  29. 29. Step IV: Monitoring Measurement Principles <ul><li>A Metric of At Least 3 Measures Should be Used to Understand the Object </li></ul><ul><li>Statistics Should Be </li></ul><ul><li>used to Understand </li></ul><ul><li>the Behavior of </li></ul><ul><li>Occurrences of an Attribute </li></ul>
  30. 30. Step IV: Monitoring Monitoring Principles <ul><li>1) Create a Monitoring Plan prior to issuing an Bid/RFP/ITN or Completing a Contract </li></ul><ul><li>2) Incorporate Measurement Principles in the Monitoring Plan </li></ul><ul><li>3) Monitoring Plans should be tailored to the intricacies of each contract </li></ul><ul><li>4) Riskier contracts are more complex and should have more detailed Monitoring Plans </li></ul>
  31. 31. To Summarize <ul><li>What is Performance Based Contracting? </li></ul><ul><li>Why is it used? </li></ul><ul><li>Who uses it? </li></ul><ul><li>What are the 4 steps? </li></ul>
  32. 32. Questions??

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